When looking to take out life insurance you need to first consider some fundamental questions such as who you need to protect, what financial difficulties they would face as a result of your death, how long they would require help, and, consequently, what value of cover you require.
Here's a rundown of some of the main reasons you may require life cover:
- I have a partner/spouse: Consider their ability to take on the cost of a mortgage and day-to-day living without your income. This will give you some idea of how much life insurance you may require and what you require it for.
- I have children: Don't forget the cost of education expenses (such as university fees) for your children when you are trying to decide how much cover you need.
- I have elderly relatives that need to be cared for: People often assume that life insurance is to protect a spouse/partner and children. However, the unexpected death of a grown-up child may leave elderly parents unable to look after themselves both physically and financially.
- I am the breadwinner: How would your family survive without your annual income? It may be worth considering a policy that gives an annual or monthly income as a payout. Policies with annual payouts tend to have slightly lower premiums than a lump sum payout policy but make sure you consider whether your family would be best to have a lump sum that they can invest themselves to give them an annual return.
- My partner/spouse looks after our children: Couples often take life insurance out for the main breadwinner but forget the cost burden of replacing childcare cover if the homemaker/childcarer were no longer around. Ever considered how much a full time nanny would cost?
- I have a mortgage: Don't leave your family members with the cost burden of a mortgage. If you have an interest only mortgage then you need to be looking at a 'level term' policy. If you have a repayment mortgage then a 'decreasing' policy best fits your needs (see 'Types of life insurance' for explanation of these).
- I have significant debts: Always consider the total cost of your debt (loans, mortgages, credit cards) when deciding the value of cover that you need. This needs to be balanced out by the level of premium that you are willing to pay of course because more cover equals higher premiums.
- I own or am a partner in my own business: You may be insured for your building and have all the liability insurance in the world but have you given consideration to what will happen if you lost your key person. Think about the cost of finding and training a successor. What happens if the partner's share of the business is passed on to a person that has no interest in your business. Partnership insurance gives the surviving partner the funds to buy-out the interest n the business.
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Author: KYM Editor
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